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Parliament - Eskom called for cost-related tariff increases
on Tuesday, citing Sanral's woes as proof that the consumer-pay principle needs
to apply to safeguard the credit ratings of parastatals.

Finance director Paul O'Flaherty told MPs the utility needed
tariffs to reach a cost-reflective level of 90 cents per kilowatt hour in real
terms by 2017 to complete its R385bn build programme and pay its debt.

"We are at 60 South African cents (per kilowatt hour)
at the moment; in real terms we need to get that up to 90 cents," he said
after briefing parliament's public enterprises portfolio committee on the
programme.

He said that when Eskom approached electricity regulator
Nersa in July on the next set of tariff increases, it hoped to secure an
agreement firstly to extend the multi-year price determination period to five
years, and secondly to cover production costs.

"We will be asking for a longer period than three years
because we need some certainty.... We believe five years is a more appropriate
path."

He added: "We need to constantly remind (the public)
that we need to move to cost-reflective tariffs.

"We need to make sure that our
investment grade rating is sound, although as we sit at the end of March, we
have raised R180bn in debt; we need to get to R300bn."

Eskom would not divulge the percentage by which tariffs
needed to rise to achieve the required price level.

O'Flaherty said that since Eskom agreed on a funding plan
with National Treasury in 2010, it had put behind it a R300bn shortfall that
stalled the construction of Kusile and had now secured 77% of the money needed
to complete its two new power stations.

"I'm pleased to announce that... more than 77% of our
funding to finish off Kusile is completely secured and the rest has been
identified."

He said much of the money secured so far had been raised on
foreign markets. The same probably applied for the remainder needed to finish
Kusile and Medupi, set to be the world's third and fourth largest coal-fired
plants once completed.

This reinforced the need for a good credit rating to prevent
Eskom going the path of Sanral, he said.

Moody's Investors Service cut the road agency's credit
rating status to Baa2 with a negative outlook this month after a court
interdict halted the implementation of e-tolling to cover the cost of the
Gauteng Freeway Improvement Project.

"Once you go to the international markets it is very,
very important as you've seen with Sanral, that what you have is an investment
grade rating. If you don't have an investment grade rating it is very difficult
to find money.

"So it is very important from an Eskom point of view
that we continue on our path of solid investment grade ratings, and that will
come down to a tariff rate discussion."

O'Flaherty recalled that Eskom managed to reduce the tariff
increases from 25% to 16% in part because the shareholder - the government -
sacrificed its return of R8bn.

That saving to the consumer has now been exhausted, he said.

"The global financial crisis and the slowdown is a
problem. I think the Sanral issue is a challenge. The user pays principle needs
to apply."

Iraj Abedian, chief economist at African Capital, said
Sanral's inability to repay R20bn in debt had made both parastatals and the
capital markets wary of what could happen if there was popular resistance to
consumers paying for infrastructure.

"The capital markets are going to be on the cautious
side to finance parastatals' grandiose plans especially if they span over
several years."

Abedian said the impact of electricity price rises on the
economy could be mitigated by making public long-term projections on the
increases needed to fund projects.

Five years was not sufficient to achieve this, he said.

"If you want to avoid midstream uncertainty, check the
facts and share them upfront with all players, the public being the first among
them."

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